Well, faithful readers, I'm going to do what I said I wouldn't do and post about this perfect storm of financial ruin we find ourselves in. I'm doing it mostly to help myself understand what happened and who deserves the smack down. Grab a cuppa coffee, I've got cinnamon rolls I'll warm up, have a seat and prepare to discuss.
The banks deserve a big chunk of the blame pie. First, they started bundling mortgages, turning them into securities, and selling them to investors. So they said, man, that was easy; lets loan out some more money so we can bundle up more mortgages! They got really, really creative with how to structure loans and who to give the money to. ARMs are just a tiny example of their creativity. There were interest only loans, negative amortization loans, zero down loans, you name it, they did it. And the thing is, the borrower didn't have to prove they could pay the money back! Anyone remember the "no document" loans? Seriously. The bank said "OK, Mr Borrower, you say you make X dollars a year? We'll just take your word for it". And why did the banks do this? They did it because if Mr. Borrower couldn't make the payments, he could either refinance or sell the house, since the values of houses were skyrocketing. In fact, most of the creative loan market was based on this assumption.
Then we have the investment bankers who are #2 on the blame list. They were just plain greedy. The took all sorts of profit from the bundled mortgages. So they said, man, that was easy; we want more of that! And they just could not pull themselves away from the trough; they had to gorge themselves right up to the bitter end. Greed, pure and simple.
Finally, let's look at the borrowers. I know, it's not PC to lay blame on some poor guy who's losing his home, but they do have some responsibility for this mess. We've all seen the news reports showing some poor soul who's losing his house due to unforeseen circumstances. He buys a house with every intention of repaying the debt, then loses his job or suddenly has serious health issues that make it impossible to honor that obligation. But the reporters seem very careful to avoid the other borrowers-the ones that bought a house that was way beyond their means. Or the people that got a mortgage with a balloon payment. In some cases, the borrower was given a ridiculously low interest rate with an adjustment to a much higher rate after a couple of years, and instead of planning on how to deal with it, they just ignored that huge payment looming on the dark horizon until it was too late to come up with a plan for dealing with it. These people were seduced by the siren song of low payments for x years. They probably had every intention of paying more than the minimum or saving up for the day they had to pay the piper.
Unfortunately, human nature being what it is, that intention was never realized. When you're walking through that new house that still smells like fresh paint and you're imagining your troll doll collection on the built in bookshelves, it's hard to imagine what will happen 5 years down the line when you have to come up with a balloon payment. A mortgage is a huge responsibility that lasts for years. It should not be easy to get. It should be entered into carefully and thoughtfully. Too many loans were given to people who just didn't think about that financial responsibility. It would not surprise me if some of those people who are losing their homes don't even know what kind of loan they have. So the borrower deserves at least a small slice of blame pie.
I apologize for this long post. I'm just so angry that I have to be on the clean up squad. I have a modest home, and live a modest middle class lifestyle, and now I have to pay $3000 to bail out someone who couldn't make the same reasonable financial decisions that Hubby and I have made all our adult lives. It sucks like a Hoover and I have no one I can smack in person.